Churchill China Plc LON:CHH is to publish its year-end results on 13th April.
To be honest, when I first saw this stock on the AIM-listing board, I assumed that it was one of a plethora of Investment Trusts, that promised: “…to produce long-term capital growth by investing predominantly in shares of, or depositary receipts representing the shares of, Chinese companies.”
I was quite surprised to find that Churchill is actually a pottery and tableware company, that manufactures quality crockery and has been since 1795. I guess I don’t pay too much attention to what goes into my kitchen cupboard, being its mostly chipped mugs and cracked cups.
Storm in a teacup
A company with such a long and storied history must know a thing or two about how to run a business, as it’s seen numerous economic downturns and recoveries, and so this current one, is little more than a storm in a teacup.
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And it has returned an unspectacular though steady 4.2% this year so far (to 6th April) and fallen -11.4% over one-year. Churchill’s shares have ranged between 1,020p and 1,600p over a 52 -week period. The company has a market cap of GBP136.4m
Obviously Churchill hasn’t been on AIM since the eighteenth century – that would have been thinking well ahead of its time – but moved to AIM in April 2003, so has been a constituent for 20 years, or two-thirds of the index’s history after initially listing on the LSE in 1994.
Founded in the heartlands of ‘The Potteries’ in Stoke-on-Trent, it has remained in the spiritual home of the British ceramics industry since Sampson Bridgwood, after serving his apprenticeship with a number of other potters in the area, set up his own shop Sampson Bridgwood & Co. The Bridgwood family are still involved in the business five generations and 200 year later.
The company initially produced earthenware, but it soon began to produce bone china. Bone china is a type of ceramic that is made from a mixture of bone ash, china clay, and feldspar. It is known for its high quality and durability. Churchill China became one of the leading producers of bone china in the world.
Global market
In the 19th century, Churchill began to expand its product range to include a variety of other types of ceramic tableware. The company also began to export its products to other countries around the world. In the 20th century, Churchill changed its name to ‘Churchill’ and continued to grow and expand. The company acquired a number of other potteries, and it also opened new factories in other parts of the world. Churchill became one of today’s largest and most successful pottery companies in the world.
The crockery that the business produces is especially valued by the hospitality industry, but also has a strong retail following who (at least those who appreciate these kind of things) value Churchill’s high quality and stylish designs. And although the business has been around a long time, it has invested in the latest technology including digital printing to keep apace with changes in the industry. The company sells its products in over 100 countries worldwide.
Upper end of consensus
The company has weathered the storm last year, and in a recent update said that it anticipated full-year profits in the GBP8m to GBP8.8m range, which is at the upper end of analyst consensus. The company was insulated from the worst vagaries of the UK economy in 2022 by having a strong export-led revenues.
The company did note: “…margin levels remain lower than in previous years although there has been some improvement in the second half of the year as we have managed the challenges of increased material and energy costs.”
The AIM-listed company said that its outstanding order book remains above normal levels, “…and progress has been made in improving supply to customers towards the end of the year”, adding, “…the rate of incoming orders continues to be satisfactory.”
As the hospitality sector closed for business during the Coronavirus pandemic, Churchill’s revenues and profitability were subsequently affected, orders evaporated almost immediately. The ceramics company shelved its dividend, and implemented working capital controls across the board. The company focused during its downtime on developing market share, it built out its distribution hub in Rotterdam and took action to iron out supply chain issues. But as hotels and restaurants opened up again, Churchill saw a reversal of fortunes.
Energy independence
Obviously making ceramics takes a lot of energy, and last year the company was affected by the surge in electricity and gas costs. It has, since 2019 been trying to become more energy efficient, initially installing 240 solar panels at its factory and subsequently building up its solar stock to 4,500 panels by 2022 – meaning that 100% of the electricity it uses at its UK factories is supplied from renewable energy. The company also phased out its diesel forklift trucks for electric forklifts this year, reducing its dependence on the grid and hydrocarbons even more
The company is still wrangling with wider-UK market issues – staffing has been an issue, as its need to increase production was unmatched by skilled workforce available in the market. Recession is still an overhanging spectre, but things look more rosy now than at the beginning of the year and the company has been through worse downturns than this during its history.
In its last interim statement to end-June 2022, Churchill saw revenues increase 73% year-on-year to GBP41.4m and profits for the six months increase 218% over the year previously to GBP3.5m and had operational cash of GBP2m. The company expects more of the same ‘plus’ for the second half of the year. The concept of dividends is back on the table.
Bridgewise gave Churchill a ‘Hold’ recommendation, stating: “Churchill China’s recently released results … indicate that [it] is performing reasonably well and on par with its peers. Its income, value, and income factors all individually appear positive and give support for optimism regarding the likelihood of continued positive performance. We therefore gave Churchill China a total score of 67 out of 100.”
